New Jersey legislators have proposed a new bill, S3675 / A5270, that makes various revisions to existing laws pertaining to certain retailers and manufacturers of alcoholic beverages. The proposal also provides a tax credit under the corporate business tax and the gross personal income tax to certain retail licensees. The tax credit would be issued based on taxable sales made on the licensed premises in the three years preceding the bill’s date of enactment.

Proposed changes by the new bill

Under the proposed bill, craft alcoholic beverage manufacturer licensees will be allowed to sell non-alcoholic beverages and food or operate a restaurant on the licensed premises. The bill also allows these craft alcoholic beverage manufacturers to coordinate with any food vendor, including food trucks, to provide food on the licensed premises or at off-premises events.

Under current rules and regulations, the municipalities impose restrictions on the issuance of additional licenses. If passed, the new legislation will begin eliminating these restrictions starting on or after January 1, 2024. Effective January 1, 2029, there would be no restriction. The *proposed timetable for adjustments is as follows:

The New Jersey Restaurant and Hospitality Association

The New Jersey Restaurant and Hospitality Association (NJRHA) issued a statement on March 2, 2023, regarding the proposed legislation, stating, “The significant investment made by current license holders must be appropriately recognized. The value of these investments, often held as collateral by financial institutions, will instantly diminish once new licenses are added to the market.” The NJRHA statement adds that “Flooding the market with new licenses will diminish the value of these licenses and financially devastate thousands of small business owners financially, during an already challenging economic climate.”

Under the bill, a license holder who, on the bill’s effective date, had taxable sales in any one of the three preceding calendar years at the licensed premises which did not exceed $1,500,000 would be allowed a tax credit in the amount of $50,000; if between $1,500,000 and $2,900,000, a tax credit in the amount of $40,000; and above $2,900,000, a tax credit in the amount of $30,000.

Considerations for Class C licenses

The bill also changes the procedure for renewing an inactive Class C license. Under current law, an inactive Class C license is a retail license that is not being used at an open and operating licensed premise. A licensee is required to place the license on “inactive status” when the licensed business ceases operation and the license continues to be held by the licensee of record. A municipality may renew an inactive license annually for up to two years following the date it became inactive. If the license has been inactive for more than two years, the licensee is required to file a petition to maintain possession of the license with the director of the Division of Alcoholic Beverage Control (ABC).

This bill removes the director’s authority to grant petitions to renew inactive Class C licenses and grants the authority to municipalities to renew these licenses regardless of whether the license is actively used in connection with the premises. In addition, the bill allows a municipality to deny the renewal of an inactive Class C license if the license holder has not made a good faith effort to actively use the license. The bill allows a municipal board or body that denies a license renewal to reissue the license at public sale in accordance with current law.

Under current law, a restricted brewery license is only issued to a person who also holds a Class C consumption license, which is generally issued to bars and restaurants. The restricted brewery license allows the licensee to brew the beer, while the Class C license allows the licensee to sell that beer directly to restaurant patrons. The proposed bill allows the holder of a restricted brewery license to convert the license into a limited brewery license in exchange for a fee.

Craft distillery licensees

The bill also clarifies that craft distillery licensees are entitled to sell cocktails mixed with non-alcoholic beverages, mixers, or garnishing. In addition, the bill removes from current statutory law the fees paid by craft alcoholic beverage manufacturers and provides that the fee schedule is to be set by rules and regulations promulgated by the ABC.

The cost of a license in many New Jersey municipalities can reach into the six or seven figures range and advocacy groups have spent years fighting for liquor license reform, stating that current regulations impede economic development in some areas of the State. While this new legislation promises to expand on the privileges of brewery, winery, and distillery license holders, restaurant owners who have made significant financial investments to retain their licenses and safeguard their future financial security do not want to see this legislation pass.

Please reach out to Bob Gilbert at rgilbert@citrincooperman.com for questions regarding this proposed legislation or contact one of our Restaurant & Hospitality practice professionals.